Five years after a novel virus brought the world economy to a grinding halt, a familiar threat – the rise of protectionism – is once again generating instability in global markets. Despite temporary reprieves in the form of paused tariff escalations between major trading blocs, investor unease persists, fueled by historical precedents of trade disputes spiraling into severe economic downturns.
The early 1930s witnessed a wave of retaliatory tariffs among leading economies. This protectionist surge is widely considered to have exacerbated and prolonged the Great Depression, leading to a sharp contraction in stock values, industrial output, and employment across the globe. This period served as a stark reminder of how restrictions on trade, often intended to shield domestic industries, can paradoxically harm a nation’s own manufacturers and exporters by increasing the cost of imported components.
The devastating economic consequences of the 1930s trade conflicts and the subsequent global armed conflict underscored the critical need for international cooperation on trade. Following the end of World War II, a new framework was established to promote open and stable trade relations. The General Agreement on Tariffs and Trade (GATT), initially signed by 23 nations, including India, in 1947, laid the groundwork for reducing trade barriers through successive rounds of negotiations. This ultimately paved the way for the creation of the World Trade Organization (WTO) in 1995, a more formalized institution tasked with regulating and facilitating global commerce.
While recent rhetoric from some major powers has questioned the benefits of the global trading system, this framework has broadly served the interests of participating nations over the past seven decades. It has provided companies with access to vast international markets and offered consumers a wider variety of goods at competitive prices. The system has also been a catalyst for significant economic growth in various regions, from the post-war recovery in Western Europe and Japan to the more recent rapid expansion of economies in East Asia, particularly China and India.
It is noteworthy that increased criticism of global trade in some Western nations has coincided with the significant economic ascendance of Eastern economies. Earlier accusations leveled against Japan regarding technology transfer and currency valuation in the 1980s, which led to interventions like the Plaza Accord aimed at adjusting currency exchange rates, bear some resemblance to contemporary concerns surrounding China’s trade practices and global economic influence.
However, current anxieties regarding China’s role in global trade and investment are not solely rooted in economic competition. Questions have been raised about the adherence of certain state-owned enterprises to fair trade principles and the use of economic leverage for geopolitical objectives since China joined the WTO. For many countries in Asia, the prospect of a global economic order dominated by a single power is a considerable concern.
India’s response to the recent heightening of trade tensions has been characterized by a pragmatic approach, engaging in discussions to lower tariffs without mirroring protectionist actions directed at others. The nation has also actively pursued expedited trade agreements with various partners.
As a major global economy, India is well-positioned to articulate a broader vision for the future of the international trading system. There is a compelling case for India to advocate for reforms within the WTO to enhance its effectiveness and responsiveness. Strengthening safeguards related to national security concerns within the trade framework is crucial. Furthermore, mechanisms are needed to address the weaponization of trade relationships and deter practices such as the dumping of excess production onto international markets through effective penalties. Reforming the WTO’s decision-making process, potentially moving towards voting on certain matters rather than requiring full consensus, could also make the body more agile. Special considerations for developing nations within such reforms would be essential.
For India to effectively shape the global conversation on trade, demonstrating a consistent commitment to the principles of open and equitable commerce is vital. Avoiding inconsistent protectionist measures at home will reinforce its credibility on the international stage as it champions a more robust and fair global trading environment. Historically, India’s economic policy has at times leaned towards import restrictions, a tendency that future policy must actively counter to fully embrace and champion the benefits of a truly globalized economy.
